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Many charities compete to deliver public services. As most of these charities are publicly funded, it seems that the question is not how further savings can be made to the public purse, but who gets to decide what the funds are spent on? Is there really much difference between a charity or a government department delivering a public service?

The question of whether charities should take the burden of providing services has divided commentators. Some think that charities should develop capacity to deliver public services and become part of the mainstream public sector. Others think charities should supplement service delivery rather than help with the statutory obligations of authorities.The question is, in giving the funds to charity will the government be able to spend less?

If this is the perception of the government, it may be illogical. There is a minimum level of spending below which the charities will have to supplement funding out of other reserves. The perception within the voluntary sector is that the government has failed to comprehend what charities are being asked to do. The demand for charity services has increased simultaneously with the recent cuts in funding.

The trend over recent years has been to advance public service delivery via charities. Problems were highlighted by issues that arose surrounding work by the Trafford Community Leisure Trust and the Wigan Leisure and Culture Trust. The Charity Commission found that there was no objection in law to charities undertaking public services. Prior to these cases the view was that charities should not undertake mandatory duties on behalf of local authorities, but could undertake discretionary duties.

Since then the pace of change has been rapid and the sector has expanded into areas such as healthcare, social services and other areas often overlooked, such as the recent formation of the Waterways Trust to look after the inland waterways. Moreover, studies into the transfer of public assets to trusts have suggested that this may be a way of releasing assets to communities, allowing charities to run small community-led services.

Uncertainty was created by the Health and Social Care Act and the fact that funding cuts had their greatest impact on the most deprived areas, which are most reliant on public funding. Sir Stuart Etherington, chief executive of the NCVO, suggested that there was now very little, if any, fat to trim. He also highlighted the difference between the contract culture and grant funding. As much of the preventative work of charities is grant funded, the dwindling supply of this funding is counterproductive – more acute problems still have to be addressed but in the form of service contracts. The voluntary sector needs to diversify funding rather than concentrating service provision under contracts. This concentration on charities providing services also leads to allegations of "fake" charities, which behave more like preferred business suppliers.

The NCVO also produces papers within its guidance public service delivery. The overriding tone of all of the papers is that charities must concentrate on efficiency and economies of scale (both in purchasing goods and in producing economies of process – division of labour if you like) to produce value for money and ensure that funding is not wasted. One weak area for charities is that payment may only be by results, and unless there is an agreed method, or parameters for measuring results, charities may suffer in the next funding round. The purpose of such payment may be to improve service quality and the transparency of where those funds have actually been applied, but this may well backfire.

The real issue may be that government bodies (local or central) are not best placed to spend the funds. However, in transferring their functions to the charity sector they must be realistic as to just what can be achieved. The two extremes are demonstrated by the recent cases of the Knotty Ash Special School Trust and the Immigration Advisory Service. In the first case the council was the sole trustee of charitable lands but admitted that it had failed, in breach of trust, to pursue the charity's rights which resulted in wasting approximately £90,000 and there being very little charitable activity. There was no increase in efficiency or activity in this case. In contrast the Immigration Advisory Service was the largest provider of publicly funded immigration and asylum advice. Government reforms and cuts meant that the charity's income was reduced so sharply that it simply could not continue.

It has to be asked whether or not the cessation of funding to such a service provider was deliberate policy or not. How else did the government imagine that the service could continue? I suspect that the government may be transferring service contracts to charities for lesser funding in the hope that the resourceful sector might "step up to the mark". Vital services will not be diminished or reduced but ultimately the funding may be.